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Fixed costs are business expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance. These costs have to be paid regardless of the company's level of output.
Understanding fixed costs is crucial for budgeting and pricing decisions. They are an essential part of break-even analysis, which determines the sales volume needed to cover total costs and begin making a profit. High fixed costs require a business to maintain a higher level of sales to remain profitable.
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